Headlines
Currencies: CEE currencies lose ground as Lehman anniversary approaches
Fixed Income: Czech central banker cools rate hike expectations
Czech Republic
The Czech koruna temporary decoupled from the weakening zloty on Friday as the EUR/CZK shortly dipped to the 25.45 territory. It’s really hard to find factors which moved the koruna, because the currency definitely shrugged off all domestic figures (particularly the August C/A balance), which were in line with consensus.
Today, the session has started with the release of the July retail sales, which were a bit better than the market expected. Still, almost 5 % year-on-year decline is the disappointing figure, which indicates that the final demand suffers from high unemployment. Domestically beside the retail sales, the market might be interested in interview of CNB Bank Board member Vladimir Tomsik. He sounded a bit dovish, though he mentioned that he saw the equilibrium level for the CNB rates at around 3 %. On the other hand he said he could not exclude more cuts.
The dovish central bank talk might be positive for the Czech fixed income market and the decline at the front end of the curve might continue. Interestingly, Tomsik also mentioned the behavior of the risk premium in the Czech money and bond market. He sees a decline in the premium as the economy recovers, while he does not think that the central bank could anything more about it. We share this opinion and see a more visible decline in asset swap spreads too.
| Currencies | change | |
| EUR/CZK | 25.53 | 0.1% |
| EUR/HUF | 274.5 | 1.1% |
| EUR/PLN | 4.227 | 1.9% |
| USD/PLN | 2.854 | 0.0% |
| EUR/USD | 1.454 | -0.4% |
| USD/JPY | 90.7 | -0.5% |
| Bonds 2Y | change | |
| Czech Rep. | 2.48 | -0.15 |
| Hungary 3Y | 8.05 | -0.04 |
| Poland | 5.21 | 0.00 |
| Slovakia | 1.95 | 0.01 |
| Eurozone | 1.22 | 0.00 |
| USA | 0.90 | 0.02 |
| Bonds 10Y | change | |
| Czech Rep. | 5.09 | -0.01 |
| Hungary | 8.34 | -0.07 |
| Poland | 6.28 | -0.01 |
| Slovakia | 4.68 | -0.06 |
| Eurozone | 3.24 | -0.04 |
| USA | 3.33 | -0.01 |
Hungary
The Hungarian forint does not like the sourer mood on Asian equity markets and together with the weaker Polish zloty, the pair started the week 1% weaker at 274.00. The Finance Ministry published the 2010 budget draft on its website (http://www.pm.gov.hu/web/home.nsf/frames/english) including the targeted 3.8% of GDP deficit. Deeper analysis suggests that there are several risks around the budget, but as long as the government seems to correct the imminent challenges, markets may not worry too much about this before the elections.
The Hungarian fixed income market finished the week in a better mood and yields remained close to their lows of 7.50% at the shorter- and 8.00% at the longer-end. Good inflation data from August helped them to neglect the weaker currency so far and as long as this picture remains, the currency weakening may not impact them much, in our view
Poland
The Polish zloty lost further ground, as US equities turned into negative territory on Friday. The pair got as far as 4.18 EUR/PLN, also due to continuing negative impact of the budget talks. Poland also recorded a surprisingly high current account deficit of 565 million euros in July compared to a surplus of 459 million euros in June. Nevertheless the market more or less ignored these figures.
Although the domestic fundamentals remain strong, the zloty may be more vulnerable to weakness on the global equity markets as the budget woes still weigh on the market. Hence we are very curious if the pair is able to withstand the 4.21 EUR/PLN. Breaking (closing) above this level would push the zloty into bearish territory for a while despite a series of positive macro-figures that we expect to get this week.
